The Impact of Fiscal Governance on Bond Markets: Evidence from Late Budgets and State Government Borrowing Costs
AbstractDoes fiscal governance affect government borrowing costs? We operationalize fiscal governance as the ability of governments to pass a budget on time and, using a unique data set on budget enactment dates, analyze the effect of such late budgets on government bond yield spreads. Based on a sample of 36 US states in the period 1988-1997, we estimate that a budget delay of 30 days has a long run impact on the yield spread between 2 and 10 basis points. States with sufficient liquidity in the form of large reserves face small or no costs from late budgets.
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Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 2010-11.
Length: 22 pages
Date of creation: Oct 2010
Date of revision:
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fiscal governance; political deadlock; late budgets; fiscal stalemate; Chubb relative value survey; debt cost; bond spreads;
Find related papers by JEL classification:
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
- H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
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